Markets for Ecosystem Services on Agricultural Lands: Experience and Outlook in the United States

Transcription

1 Markets for Ecosystem Services on Agricultural Lands: Experience and Outlook in the United States Frank Casey Conservation Economics and Finance Program Defenders of Wildlife Presented at the Biodiversity Forum, Cascais Natura Estoril, Portugal, September 13, 2010

2 Topics Ecosystem services defined Market -based approaches to ecosystem service provision Designing ecosystem service markets Examples of ecosystem service markets Characteristics of Functioning Ecosystem Service Markets Some Conclusions

3 What Are Ecosystem Services? 1) Millennium Ecosystem Assessment:

4 Ecosystem functions vs. ecosystem services vs. ecosystem service values Ecosystem Functions: Biophysical processes in an ecosystem Ecosystem services: Outputs of ecosystem functions that directly or indirectly benefit humans Ecosystem service values: the benefits humans receive from ecosystem services

5 Examples: Ecosystem function Ecosystem service Ecosystem service value Habitat provision to pollinators Pollination of crops Value of harvested crops (or avoided cost of artificial pollination) Absorption of wave energy Buffering of tidal surges Avoided/reduced damage to humans, human structures, crops, livestock Service values are context-specific!

6 2) Boyd and Banzhaf (2006): Natural or Engineered Setting Ecosystem services are end products of nature, that is, components of nature that are directly enjoyed, consumed, or used to yield human well-being. Ecosystem Services Pollinator populations, soil quality, shade & shelter, water availability Aquifer availability, surface water quality Air quality, drinking water quality, land uses or predator populations hostile to disease transmission, wetlands, forests, natural land cover Surface & groundwater, open land Relevant species populations, natural land cover, vistas, surface waters Natural land cover in viewsheds, wilderness, biodiversity, relevant species populations Harvests Benefits Drinking water provision Damage avoidance Waste assimilation Recreation Amenities & fulfillment

7 U.S. Federal initiatives to promote ecosystem service provisioning United States Department of Agriculture: Conservation Innovation Grants

8 Lack of protection of ecosystem services via markets (market failure) or regulation Market Failure - Many ES are public goods - Their value cannot be captured by providers in free markets - Few created markets for public goods (e.g., wetlands and endangered species) Institutional Failure - Policies and institutions do not (sufficiently) encourage land management for ES provision - Ecological boundaries don t match political boundaries - Extending institutional boundaries beyond traditional reach is politically difficult

9 Large and growing number of ecosystem service payment schemes around the world - In 2002, a survey analyzed 287 cases worldwide of ecosystem service payments for forest services alone

10 Market-based approaches to ecosystem service provision The Idea: The marketing of ecosystem goods and services is basically an effort to turn such recipients [who benefit for free] into buyers, thereby providing market signals that serve to help protect valuable services. (Brown et al., 2006:1)

11 So why is designing ES markets a challenge? Need to determine: Who pays whom? When? For what? What exactly is the product or output How is the output measured (standards), and How much is it worth?

12 Who pays whom? Individual to individual Driven by self interest, not regulation: Perrier-Vittel pays farmers to use less intensive dairy farming techniques to reduce pollution of its springs (France) Costa Rica hydropower plant pays upstream farmers to implement land management practices to reduce soil erosion Payment for Ecosystem Services

13 Mitigation markets government initiated, regulation driven Clean Water Services pays farmers to plant shade trees along Tualatin River to reduce water temperature and comply with U.S. Clean Water Act U.S. Wetland Mitigation Banking developers must offset filled wetlands to comply with Clean Water Act, (but are functions the same?) U.S. Endangered Species Act: Conservation Banking for endangered species

14 Payment programs for resource conservation and/or ecosystem services: PES Australia s Bushtender Program NY City pays landowners in upstream watersheds for agricultural easements and new water quality initiatives on small farms US Agricultural Resource Conservation Programs

15 Most ecosystem service payments to date are based on government created markets or government payment programs Reason: many ecosystem services are public goods - property rights are need to be defined to attract private investment, and economic value cannot be captured by land owners

16 Designing Ecosystem Service Markets Never lose sight of the main objective - The protection of ecosystem service values High exchange volume and low transaction costs for buyers and sellers are desirable, but are not the primary goal of conservation markets conservation is. Therefore, the primary objectives are: - The definition of service units (i.e. currency ) - The setting of exchange rules (trading areas, trading ratios)

17 Challenges in market design: - Identification of services of concern - Measurement of service flows - Valuation of service flows - Pricing of services and setting of exchange rules - Securitization of service contracts - Stacking and Bundling of services - What are outcome indicators to be measured

18 Measurement of Ecosystem Service Flows Assessment methodologies must be robust: - reasonably accurate - reasonably inexpensive Applicable by the land owner, not only trained ES technicians/ scientists Technology and understanding of service provision by ecosystems are improving Kadyszewski, 2005

19 Example - Biodiversity Conservation and Ecosystem Services: Red Wolf Reduced populations of raccoons and invasive nutria Fewer raccoons: more quail more hunting/income for land owners from quail hunting Fewer nutria: less damage to dikes and irrigation channels lower costs for farmers less damage to wetland vegetation more migratory waterfowl reduced public management costs for control of invasive species

20 Sea Otters - Ecosystem services Protection of kelp forests Beach erosion control, carbon sequestration, fish & mollusk populations

21 Pricing of Ecosystem Services Very few, if any, ecosystem service payments are based on actual full economic values. This reduces the competitiveness of service production with competing land uses.

22 Securitization of Services Insurance/bonds to guarantee fulfillment of service provision contract Example: The Environmental Trust (CA) What happens when an entity with responsibility for long-term stewardship of conservation banks files for bankruptcy? Need to establish guidelines for financial security and clear chain of liability

23 Bundling of ecosystem services Potential solution for protection of services that suffer from market failure, such as biodiversity: Identify marketable services that are coproducts of nonmarketable (public good) services Southwestern Willow Flycatcher Many empirical examples of biodiversity bundling with: - Carbon sequestration - Water quality preservation - Landscape beauty preservation

24 Bundling of ecosystem services Challenges: Overlap between protection of biodiversity and many other services is far from perfect (Chan et al., 2006) Protection of ecosystem services vs. protection of ecosystems (e.g., C sequestration: plantation vs. forest)

25 Examples of Ecosystem Service Market Projects Farmers and Ranchers Participation in ES Markets Sage Brush Ecosystem Metric Design Gopher Tortoise Habitat Trading Rules Water Quality Markets in Florida

26 Strengths of Ecosystem Markets Attract more financing and increase private incentives for protection of ecosystem and their services Make conservation more competitive with alternative land uses One more tool in the tool box for conservation

27 Primary Messages Viable ES markets require standardized units of trade, lowcost measurement and valuation of service flows selection of user friendly indicators Markets require adequate currencies that account for all services across space, time, and type Role for the public sector in guiding market development and conduct (monitoring and enforcement) Think about market premiums attained through certification

28 Resources Ecosystem services benefits valuation toolkit/models nservation_economics/index.php Florida Ranchlands Environmental Services Project: Willamette Partnership: templates. Countingontheenvironment.pdwiki.com National Working Group on Ecosystem Services Valuation: Parametrix, Inc. EcoMetrix: Environmental Services Accounting: Pinchot Institute:

29 OBRIGADO!!!

30 Questions

31 An Ecosystem Services Model: Conservation and Mitigation Banks in the US!"

32 Overview What is a mitigation/conservation bank? Regulations driven Benefits of banks- Ecological, private sector, regional planning Agency requirements for bank approval Banker due diligence Credits system Factors to consider to develop program

33 What is a Conservation Bank? Definition: An land account approved by agencies that is drawn on to compensate for adverse environmental impacts elsewhere but within a defined service area. Sites are chosen and managed for their natural resource values and special-status species or sensitive habitats. Sites may be natural (preservation) and/or include restoration, and/or creation of habitat.

34 Regulatory Driven Market Federal Government Clean Water Act- Sec 404 (Mitigation banks) Endangered Species Act- Sec 7 (Conservation banks) State and local Governments Varies- water, protected species and natural resources

35 Benefits of Banking Ecological Private Sector Market Regional Planning

36 Ecological Advantages #$% & $& $ &

37 Ecological Advantages # ' ( Shaded River Aquatic Habitat for Salmonids

38 Unplanned Development Early Stages KEY Developed Preserved

39 Unplanned Development Over Time KEY Developed Preserved

40 Planned Development With a Bank KEY Developed Preserved

41 Diverse Habitats Protected by Banks ) * +,' ' " - & ). '

42 Private Sector Market/Business,$/!0.$ & & & $

43 Private Sector Market/Business $ $ *',1 2',$

44 Regional Planning.& $3 $.& - $ ' 4 $

45 Requirement to Establish a Successful Conservation Bank. &$

46 Requirements $ 6' $' $ $ $ - $

47 Requirements 4 4&$ & 4 7 $

48 Banker Due Diligence $ 58 7, ",

49 Credit System, 3, 7$ ' & $,,,,,,

50 Considerations to Establish a Banking Program '9 $$ ',.$ $ $' 9 $ $ - $ - &, $

51 US Model is an Outstanding Approach to Provide Environmental Protection 7 $ " # & - 7 $ #$.4

52 US Model is an Outstanding Approach to Provide Environmental Protection." #'*.. 6 " &#$* 7$ 7 $:$